© 2016 The Texas Lawbook.
By Michelle Hartmann of Sidley Austin
(June 6) – Since 2012, the Equal Employment Opportunity Commission has focused aggressively on employer-issued severance agreements that purportedly interfere with an employee’s ability to communicate voluntarily with the EEOC.
Following the example of the EEOC, the Securities & Exchange Commission recently settled its first enforcement action against an issuer for alleged agreements purportedly having the potential to stifle whistleblowers.
This article discusses these three developments and best practices for drafting employer-issued agreements containing release, cooperation, non-disclosure and non-disparagement language.
Four cases are noteworthy regarding the EEOC’s focus on an employee’s right to file charges of discrimination and otherwise communicate with the EEOC.
Since 2006, the Eastman Kodak consent has been the guiding authority in drafting EEOC-approved employee severances. The EEOC and Kodak consented to specific non-waiver language.
Importantly, the approved language noted that the release was not intended to interfere with the employee’s right to participate in an EEOC-related proceeding, but it permitted a waiver by the employee to any monetary recovery, including from any administrative proceeding.
At the end of 2012, the EEOC released its Strategic Enforcement Plan for Fiscal Year 2013-2016, in which it stated its intent to “target policies and practices that discourage or prohibit individuals from exercising their rights under employment discrimination statutes, or which impede the EEOC’s investigative or enforcement efforts.”
Shortly thereafter, it brought suit against Baker & Taylor, notwithstanding that Baker & Taylor used the prescribed Eastman Kodak language. The case resolved with a settlement, in which Baker & Taylor agreed to include, among other things, affirmative statements regarding the employee’s rights to “recover appropriate relief” in proceedings brought by governmental agencies.
Accordingly, while the EEOC in the Eastman Kodak settlement expressly permitted the release of monetary damages in any EEOC proceeding, it reversed course in Baker & Taylor, prohibiting the waiver of recovering “appropriate relief” in such proceedings.
Following the Baker & Taylor case, in 2014, the EEOC filed two more lawsuits – the CVS Pharmacy case and the CollegeAmerica Denver case. Both cases were dismissed on procedural grounds, and, as to the CVS Pharmacy case, affirmed by the federal court of appeals, but the language approved the Baker & Taylor consent remains the best practice to avoid EEOC scrutiny.
In April 2015, the SEC charged KBR, Inc. with violating whistleblower protection Rule 21F-17 enacted under the Dodd-Frank Act for allegedly requiring witness-employees in workplace investigation interviews to sign statements with language warning of discipline for disclosing the investigatory matter with outside parties before obtaining approval from the legal department.
Since these investigations included allegations of possible securities law violations, the SEC found the terms as violating Rule 21F-17, which prohibits companies from taking any action to impede whistleblowers from reporting possible securities violations to the SEC.
KBR agreed to pay a civil penalty and voluntarily amend its non-disclosure agreements to inform employees that they are free to report possible violations to the SEC and other federal agencies without KBR approval or fear of retaliation.
Reinforcing protections for whistleblowers, the Defend Trade Secrets Act creates a strong private right of action for trade secrets misappropriation (including ex parte civil seizure relief). However, it punishes employers failing to include a notice to would-be whistleblowers regarding their immunity from civil or criminal liability.
Specifically, if an employer fails to notify its employees that they are protected from liability for disclosing trade secrets to the government for the purpose of reporting a suspected violation of the law, that employer is prevented from recovering exemplary damages or attorneys’ fees from an employee accused of trade secret misappropriation under the Act.
Against the landscape of these three developments, employer-issued agreements containing release, cooperation, non-disclosure and non-disparagement provisions should include the following, particularly for a corporation or investment trust that develops, registers, and sells securities to the investing public:
- Baker & Taylor language that nothing in the agreement is intended to limit the employee’s ability to file a charge or claim of discrimination with the EEOC or comparable state agency, or to recover appropriate relief by them, or to otherwise communicate with them voluntarily or in response to the government;
- KBR language that nothing in the agreement prohibits the employee from reporting possible violations of federal or regulatory law, including the DOJ, SEC, Congress, or comparable agencies, without prior approval of the legal department to make such disclosure; and
- Defend Trade Secrets Act language that employees are exempt from criminal and civil liability for confidential disclosure of a trade secret to the government for the purpose of reporting a suspected violation of law.
Michelle Hartmann is a partner in Sidley Austin’s Securities & Shareholder Litigation and Labor and Employment Practice Groups and can be reached at mhartmann@sidley.com. She frequently litigates securities and employment class action matters.
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